VAT Ruling No. 029-03

June 20, 2003 VAT RULING NO. 029-03 Sec. 105 VAT Ruling No. 067-2001 Hyatt Regency Manila 2702 Roxas Boulevard Pasay, Metro Manila Attention: Ms. Daisy Mendoza Director of Finance Gentlemen : This refers to your letter dated April 3, 2003 requesting for a definitive ruling on the issue of whether you can pass on to PAGCOR the 10% VAT on your sale of services to it. You have represented that PAGCOR is a regular customer of the hotel but the said entity continuously refuses to pay the passed-on VAT alleging that it is exempt from the same invoking Section 13 of Presidential Decree 1869, which provides as follows: "Section 13. Exemptions : "(1) . . . "(2) Income and other taxes. (a) Franchise holder. No tax of any kind or form, income or otherwise, as well as fees, charges levies of whatever nature, whether national or local, shall be assessed and collected under this franchise from the corporation; nor shall any form of tax or charge attach in anyway to the earnings of the corporation, except a franchise tax of five percent (5%) of the gross revenue or earnings derived by the corporation from its operation under this franchise. Such tax be due and payable quarterly to the National Government and shall be in lieu of all kind of taxes, levies, fees or assessments of any kind, nature or description, levied, established or collected by any municipal, provincial, or national government authority." In reply thereto, please be informed that Section 105 of the Tax Code of 1997 clearly provides that " (T)he value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services . This rule shall likewise apply to existing contracts of sale or lease of goods, properties or services at the time of the effectivity of Republic Act No. 7716." Thus, Hyatt Regency, being a VAT-registered entity, can legally pass on the VAT to its clients. PAGCOR, as a client, cannot invoke its legislative franchise that it is exempt from all kinds of taxes except for its 5% franchise tax because it cannot be denied that PAGCOR's Charter had been amended by the R.A. No. 7716 (EVAT Law) effective January 1, 1996 and now under Section 108, in relation to Section 119 of the Tax Code of 1997. By virtue of the said amendment, PAGCOR's liability to the 5% franchise tax had been replaced by the 10% VAT. Its tax liability before (franchise tax) is now VAT and therefore the correct interpretation is that the 10% VAT is the only tax for which PAGCOR is liable to pay effective January 1, 1996 and the said VAT payments shall be in lieu of all taxes, whether national and local. Hence, if PAGCOR itself is subject to VAT on its sale of services, it cannot claim on the other hand that it is exempt from the passed-on VAT on its purchases of goods and services. For an extensive discussion about the effects of R.A. 7716 and the succeeding amendatory laws and revenue rules and regulations vis--vis PAGCOR's legislative franchise under P.D. 1869, we are enclosing our VAT Ruling No. 067-2001 for your perusal. HDCTAc Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group